In the News

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IN THE NEWS

Social Security Administration Changes Disability Determination Process

On March 28, 2006, the Social Security Administration (SSA) announced its issuance of a final rule change to the disability determination process for Social Security’s disability benefits (see SSA’s press release). The rule change was proposed on July 27, 2005 and was opened up for a 90-day public comment period during which time SSA received about 900 comments. Critics of the rule change argue it will restrict eligibility, particularly for younger workers, and will limit the appeals process (see IWPR’s WomenSSA No. 16 and No. 17 for further discussion).

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NEW RESEARCH

Impact of 2007 Proposal to Privatize Social Security on Women

The Joint Economic Committee Democrats released a new economic policy brief entitled, “The Effects of the President’s Social Security Proposal on Women,” to detail the implications of the fiscal year 2007 budget proposal to privatize Social Security. The brief discusses the disadvantages women would face in a privatized system given their likelihood of being in the low wage work sector, pay discrimination, time out of the labor force to care for children, overall lower lifetime earnings, lack of other retirement income sources, and longer lifespan. The report uses Social Security Administration data to calculate the effect of privatization on women and men based on the private accounts and price indexing proposed by the President. It finds that median private account accumulations for men born in 2005 who work between the ages of 21 and 65 (with no time out of the labor force) would accumulate $198,500. Women born in 2005 who work between the ages of 21 to 65 who spent no time out of the labor force would accumulate 23 percent less than men ($151,900); women who spent 5 years out of the labor force would accumulate 33 percent less than men ($133,600); and women who spent 10 years out of the labor force would accumulate 43 percent less than men ($112,800). Women’s time out of the workforce accrues far less drastic penalties in the current Social Security system. Five years out of the workforce for a woman, beginning at age 25 would have no effect on her Social Security benefits at retirement, but would decrease her private account accumulations by 12 percent. Ten years out of the workforce would cause a 6 percent decrease in her Social Security benefits, but a much larger 26 percent decrease in private account accumulations; and 15 years out of the workforce would mean a 16 percent decrease in benefits compared with a 40 percent decrease in private account accumulations.

Trends in Contributions to 401(k) Plans

A new report by the Urban Institute, Making Maximum Use of Tax-Deferred Retirement Accounts, combines Survey of Income and Program Participation data with the Social Security Administration’s Detailed Earnings Records to look at changes in 401(k) contributions over time (1990 to 2003) and by age, gender, race, and education. Analysis of the data found that workers over age 50 were the most likely to make the maximum contributions to their plans and workers under age 30 were the least likely to contribute the maximum. Additionally, looking at individual age cohorts, the likelihood of contributing the maximum allowable increased with age. While more workers are contributing the maximum (3.5 percent in 1990 compared with 7.5 percent in 2003), that growth is attributable almost entirely to higher income groups. Workers earning $75,000 to $100,000 were 31 times more likely and workers earning over $150,000 were 133 times to contribute the maximum amount than those earning $25,000 or less. Women were less likely than men to contribute the maximum amount, a fact that was entirely attributable to their lower earnings. However, within earnings groups, women are actually more likely to contribute the maximum than men. College graduates are much more likely to contribute the maximum amount to their 401(k) plans than workers with some college or a high school degree or less. The same was true by race and ethnicity. For example, non-Hispanic whites were twice as likely as non-Hispanic Blacks to contribute the maximum in 1990 and three times more likely in 2003. The likelihood of contributing the maximum amount is higher for never-married workers than for married workers, and higher for married workers than for widowed or divorced workers.

“401(k) Plans Are Still Coming Up Short”

This brief by the Center for Retirement Research examines how effective 401(k) plans have been as a part of the three-legged retirement stool (Social Security, individual savings, and pension) based on the 2004 Survey of Consumer Finances. In 2004, a majority of workers with pensions, about 63 percent, had 401(k) plans, 19 percent had defined benefit plans, and 18 percent had both. Of those enrolled in 401(k) plans, less than 1 percent of workers earning $20,000 to $60,000 made the maximum contribution allowable under their plan. Workers with 401(k) plans are also less likely to diversify their investments and workers in larger companies tend to over-invest in company stock. In addition, in 2004, 45 percent of workers with 401(k) plans cashed out their pension assets when they changed jobs. The authors find that workers are accumulating far less retirement income than they could if they consistently contributed 6 percent of their earnings to their 401(k) with a 3 percent employer match. The authors, therefore, argue that making 401(k) plans an effective part of retirement security will require automatic enrollment, automatic increases over time in workers’ default contribution rates, and managed accounts that allow financial professionals to make employee investment decisions.

Healthy Employers Freezing Pensions

In “Why Are Healthy Employers Freezing Their Pensions?” Alicia Munnell, Francesca Golub-Sass, Mauricio Soto, and Francis Vitagliano explore possible explanations for pension freezes among 17 healthy companies and the impact on workers pension benefits. The four reasons given include: a desire on the part of employers to cut total worker compensation in order to become more competitive; an effort to offset the increasing costs of employer-provided health care benefits; a concern with the investment risks to employers of defined benefit plans as well as the longer lifespan of workers; and the insignificance of defined benefit plans to the economic security of higher paid employees (i.e., CEOs). The authors find that mid-career professionals that experience a freeze on their defined benefit pension and are transferred into a defined contribution pension plan (i.e., 401(k)) experience a much greater loss in their pension benefits than do younger workers that start off in a defined contribution pension plan.

The Impact of Working Longer on Health and Happiness

In “Does Working Longer Make People Healthier and Happier?” Esteban Calvo of the Center for Retirement Research uses the Health and Retirement Study and the RAND-HRS database to examine how the work status of people 59 to 69 in the year 2000 affected their health, memory, activities, mood, and mortality in the year 2002. Controlling for previous well being, healthy/unhealthy behaviors, and demographic/socioeconomic factors, the study found that late-life paid work in 2000 lowered self-reporting of fair/poor health by 6 percent in 2002. Paid work also had small but beneficial effects on people’s ability to engage in daily living activities (i.e., bathing, eating, dressing, handling money, shopping, and cooking), on mood, and on mortality. Other factors linked to more positive self-reported health include exercising, being white and female, and having more education and income. Previous reporting of poor health, smoking, and being male and Hispanic had a negative impact on self-reported health. Poor job quality was found to negatively affect mood and mortality.

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ACTION ITEMS

Get Ready for Equal Pay Day and Join a Wage Club for Women

April 25th is Equal Pay Day—the one day of the year that we marvel at the persistent disparities between men and women’s wages due to sex discrimination and labor market segregation. Factors such as women’s lower levels of education, job training, and work experience explain less than half the gap in earnings.

The WAGE (Women are Getting Even) Project (www.wageproject.org) led by Evelyn F. Murphy, former Lt. Governor of Massachusetts and author of Getting Even: Why Women Don't Get Paid Like Men and What To Do About It, and the National Committee on Pay Equity are calling upon women across the country to start local WAGE clubs in a new grassroots effort to support women taking action to close the wage gap.

According to Dr. Murphy’s book, women lose between $700,000 and $2 million over the course of their lifetimes because of the wage gap . Women of color experience even greater pay disparities, with full-time African American women workers getting only 66.8 cents and Hispanic women paid only 54 cents for every dollar earned by their white male counterparts. These losses affect women’s paychecks, pensions, and basic economic security in life. For more information about how to start your own WAGE club, please visit The WAGE Project website.

How to Become a Minimum Wage Increase Citizen Co-Sponsor

Senator Edward Kennedy (D-MA) has proposed a new bill called the Fair Minimum Wage Act that would raise the minimum wage to $7.25 over a period of two years. Over the past ten years, Members of Congress have raised their own pay by $31,000, but the minimum wage has remained constant at $5.15, or $10,700 a year for a full-time worker. This is more than $6,000 below the poverty line for a family of three. To become a citizen co-sponsor of Senator Kennedy’s bill to raise the minimum wage, you may sign his online petition.

Take Care Net’s Work and Family Bill of Rights Seeking Signers

Take Care Net (TCN) is a group of concerned citizens, including Heidi Hartmann, president of IWPR, that came together to mobilize efforts to address the crisis of care in the United States. TCN seeks to educate policy makers, the public, and the media, to link academic experts and practitioners with policy makers and the media, and to mobilize individuals throughout the country to support policies that address the needs of working families. Those who need care, ranging from young children to the elderly and people with disabilities, often receive poor care or no care at all. Those who give care to others, and particularly the women who provide most paid and unpaid care, receive low or no wages, few or no benefits, and experience penalties in the labor market. Please support Take Care Net’s efforts to improve the lives of working families by signing on to the Work and Family Bill of Rights. The Bill of Rights will be released in May, so SIGN ON NOW!

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